Our economy and the nobel in economics

Since the change in power, a climate of uncertainty has pervaded the country. Instability is evident in law enforcement and administration, affecting the economy. There is a state of paralysis in business and trade, which has been ongoing even before the interim government took office. While businesses are closing one after another, the amount of non-performing loans is rising.

The inflation rate, particularly in food products, remains alarmingly high, according to the retail price index. There are criticisms regarding monetary policy as well. The long-term stagnation in the industrial sector raises questions about how much is due to high-interest rates dissuading investment and how much is caused by a general decrease in market demand. Evidence from recent years indicates that the purchasing power of the population has not significantly increased, leading to stagnant market demand. Without demand, there is little incentive to increase supply, which in turn stifles investment.

This stagnant investment directly impacts employment opportunities. As a result, a significant portion of the population has seen their purchasing power shrink, further affecting overall demand.

Meanwhile, many business beneficiaries from the previous government have already left the country, resulting in a stagnation on overall business environment. Even two and a half months after the interim government assumed office, a lack of authority and control over the administration is evident. This has led to uncertainty and concern among the public about the country's future, which is far from positive for the economy.

According to renowned Indian economist Kaushik Basu, "Social trust and a sense of belongingness—the feeling that I am part of the society I live in—are crucial for the health of the economy. The challenge is that trust cannot be easily measured. While the relationship between budget deficits or money supply and economic growth can be demonstrated through financial theory and logic, the impact of social trust on growth rates cannot be directly measured by statistics. However, that relationship can be observed. Francis Fukuyama, through extensive statistical analysis, has shown that in societies with high mutual trust, the rate of economic growth is significantly higher."

Currently, indicators of social factors such as mutual trust, confidence, and security in our country are declining sharply, leading to a precarious economic situation. Amidst our economic struggles, the recent Nobel Prize in Economics was awarded to Daron Acemoglu, Simon Johnson, and James Robinson for highlighting disparities in development among countries.

These three Nobel laureates have conducted extensive research on the role of economic and political institutions in achieving prosperity. They have made significant contributions to analyzing why one country is wealthy while another remains poor. Their central argument is that the political and economic institutions of a country are the primary determinants of its success or failure.

The implications of this Nobel-winning research are substantial for political scientists. Acemoglu, Johnson, and Robinson seek to answer questions that link colonial pasts to present circumstances. Their research raises critical questions about the institutional damage caused by colonial policies and why this damage remains unrectified in the post-colonial era. Countries where colonial powers established constructive institutions have progressed toward prosperity, while those governed by extractive institutions struggle to follow the same path after colonization. Why is it so difficult to change the trajectory of development?

The answer is not surprising; it’s quite predictable. In countries where extractive institutions were established during the colonial era, institutional reforms remain absent in the post-colonial period because the profits of these exploitative institutions accumulate in the hands of domestic leaders in power. Extractive institutions do not operate based on the ruler’s identity; their essence is the unequal distribution of resources—regardless of who is in power, these institutions work for their benefit.

If, after the end of colonial rule, the governance falls into the hands of someone who is undemocratic and authoritarian, then the colonial extractive institutions become tools for maintaining that ruler's vested interests. Such a ruler sees no "justifiable" reason to relinquish power, and public distrust toward them intensifies over time.

This situation could change with democracy—an arrangement where the opinions of the general populace about governance institutions are taken into account. That’s why democracy is seen as a thorn in the side of authoritarian rulers. Transitioning from a dictator’s autocracy to democracy is challenging and arduous; however, according to the Nobel-winning economists, while the journey is difficult, it is not impossible. They argue that although autocrats possess many resources, the populace has a powerful weapon that the ruler does not: sheer numbers. If a vast number of people rise against tyranny, the day will come when even the most oppressive ruler will face the consequences of their actions.

In the post-colonial world, there have indeed been exceptional countries where the pursuit of democracy has been given utmost importance. While some post-modern historians label the decision to maintain the colonial governance structure in independent countries as 'passive revolution', it is undeniable that the recognition of universal suffrage and the organization of nationwide general elections in a largely illiterate nation serve as crucial evidence of an attempt to erase the tendencies of colonial exploitation. Notably, the leader who embarked on this path had himself warned the nation about the possibility of his own authoritarian behavior by writing articles under a pseudonym in newspapers ten years before independence! However, the legacy of such a leader does not guarantee liberation from exploitative institutions. Rather, the misuse of democracy often leads to the rise of leaders who seek to stifle democracy and establish authoritarian rule at the first opportunity—sometimes maintaining the façade of electoral democracy, while the inevitable result of democracy’s demise is that current institutions gradually become exploitative. The subsequent narrative becomes one of a long and arduous struggle to transition from authoritarian rule to democracy. Therefore, it is crucial to be vigilant before losing democracy or to be able to remain alert for the re-establishment of democratic systems.

There is little debate about the contribution of economic and political institutions to sustainable economic prosperity. This notion is also applicable to Bangladesh. In Bangladesh, opportunities and benefits in society are created primarily for a certain class of people, specifically those associated with the ruling political party. As Nobel laureate economist Robinson points out, for development, there needs to be a distribution of political power within an inclusive society. However, this has not happened in Bangladesh, where power has been monopolized. For sustainable economic prosperity in Bangladesh, there is a need for the creation of inclusive institutions.

However, ordinary people do not understand these theories very well, nor do they wish to. They want the prices of essential commodities like rice, lentils, oil, salt, and chilies to remain affordable. For instance, why should the price of green chilies, which is a vital ingredient for the poor, reach 300-400 Taka per kilogram? The price must be kept within a reasonable range; only then will the 'economic theory' be meaningful!

Chiroranjan Sarker: Columnist